MEMORANDUM
I. INTRODUCTION
On October 29, 2003, this Court issued an order allowing the Direct Purchaser Plaintiffs’ Motion for Class Certification [Doc. No. 119]. 10/29/03 Order, In re Relafen Antitrust Litig., Master File No. 01-12239-WGY [Doe. No. 151]. This memorandum explains the reasoning behind the Court’s decision.
II. BACKGROUND
This case presents a consolidated action against SmithKline Beecham Corporation and GlaxoSmithKline PLC (collectively “SmithKline”) for violations of the antitrust laws related to its patent for the chemical compound nabumetone, which it sells commercially as “Relafen.” Parties who purchased Relafen directly from SmithKline during the complaint period (“direct purchasers” or the “direct purchaser plaintiffs”) moved for class certification under Federal Rule of Civil Procedure 23(b)(3).
A. Factual Background
On December 13, 1983, SmithKline received U.S. Patent No. 4,420,639 (the “’639 patent”) for the compound nabumetone, a non-steroidal anti-inflammatory drug. SmithKline commenced commercial sales of nabumetone under the brand name Relafen in February, 1992. In August, and December, 1997, Copley Pharmaceutical, Inc. (“Copley”), Teva Pharmaceutical Industries, Ltd. and Teva Pharmaceuticals USA (“Teva”), and Eon Laboratories, Inc. (“Eon”) sought approval from the Food and Drug Administration (the “FDA”) to market generic nabumetone products. Upon commencement of
SmithKline filed the patent suits in question on October 27, 1997 (against Copley), November 13, 1997 (against Teva), and February 17, 1998 (against Eon). After a bench trial, Judge Lindsay of this district issued a sixty-seven-page opinion, which found, inter alia, that (1) claims 2 and 4 of the ’639 patent were invalid as anticipated by prior art; and (2) the ’639 patent was unenforceable because of SmithKline’s inequitable conduct before the Patent Office. In re ’639 Patent Litig.,
Essentially, the plaintiffs claim that but for SmithKline’s wrongful filing of patent lawsuits, purchasers could have begun purchasing nabumetone in a competitive market— comprising both Relafen and its generic alternatives — as early as September, 1998. Because of the pending litigation, however, the generic alternatives did not become available until after the stay period terminated and SmithKline’s patent was invalidated. Teva
B. Procedural Background
On December 26, 2002, direct purchasers of Relafen filed a consolidated class action complaint against SmithKline for violations of the federal antitrust laws. The lead direct purchaser plaintiff, Louisiana Wholesale Drug Company, Inc.
All persons or entities in the United States or its territories who purchased Relafen directly from defendants at any time during the period of September 1, 1998 through December 31, 2002.
Direct Purchaser Pis.’ Reply Br. [Doc. No. 138] at 26 (amending the original complaint period, which extended from “December 24, 1998 through the date on which the anti-competitive effects of defendant’s conduct ceased”). The direct purchaser plaintiffs here moved for class certification under Federal Rule of Civil Procedure 23(b)(3). [Doc. No. 119].
III. DISCUSSION
A. Legal Standard
On a motion for class certification, “[a] district court must conduct a rigorous analysis of the prerequisites established by Rule 23.” Smilow v. Southwestern Bell Mobile Sys., Inc.,
(1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the. representative parties will fairly and adequately protect the interests of the class.
Fed.R.Civ.P. 23(a); Amchem,
In addition to the requirements of Rule 23(a), the moving party must establish the elements of Rule 23(b)(1), (2), or (3). Amchem,
(A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action.
Fed.R.Civ.P. 23(b)(3). This list of pertinent factors is “nonexhaustive.” Amchem,
B. Rule 23(a)
To succeed on a motion for class certification, the direct purchaser plaintiffs must first establish the elements of Rule 23(a): numerosity, commonality, typicality, and adequacy of representation. Amchem,
The commonality element requires that “resolution of the common questions affect all or a substantial number of the class members.” Duhaime v. John Hancock Mut. Life. Ins. Co.,
The direct purchaser plaintiffs may establish typicality by demonstrating that the
The element of adequacy “has two parts[:] the moving party must show first that the interests of the representative party will not conflict with the interests of any of the class members, and second, that counsel chosen by the representative party is qualified, experienced and able to vigorously conduct the proposed litigation.” Andrews v. Bechtel Power Corp.,
Having concluded that the direct purchaser plaintiffs established the four elements of Rule 23(a), the Court proceeded to consider the elements of Rule 23(b)(3). The Court begins the following discussion with predominance, the requirement that SmithKline most strongly contests.
C. Rule 23(b)(3)
1. Predominance
Predominance under Rule 23(b)(3) does not require an entire universe of common issues, but rather “a sufficient constellation” of them. Waste Management Holdings, Inc. v. Mowbray,
The direct purchaser plaintiffs allege a “common course of conduct” having a “general effect on the market.” 7B Wright, Miller & Kane, supra, § 1781 (concluding that “a class action also will be proper” under such circumstances). Specifically, the direct purchaser plaintiffs commonly assert that Smith-Kline’s prosecution of sham patent lawsuits delayed the marketing of generic nabumetone, in turn delaying the ability of all direct purchasers to substitute purchases of Relafen with purchases of lower-priced generic nabumetone, pay lower prices for generic nabumetone in a competitive generics market, and obtain increased discounts on purchases of Relafen. Direct Purchaser Pis.’ Mem. at 4, 13, 15-16. The direct purchaser plaintiffs propose to prove these common injuries using generalized evidence and methodologies. Id. at 15. They identify three primary sources of common evidence — governmental and academic studies, projections and analyses described in SmithKline’s and its competitors’ internal documents, and price and sales data for Relafen and its generic equivalents — which, as described in the declaration of Stephen W. Schondelmeyer, Ph.D. (the “Schondelmeyer Declaration”), demonstrate the significant cost savings associated with generic entry. Id. at 15-16.
SmithKline, however, challenges the plaintiffs’ characterization of injury as a common issue, asserting that “each class member will
a. The Schondelmeyer Declaration
In support of their motion, the direct purchaser plaintiffs submit the Schondelmeyer Declaration, which concluded that “class-wide proof’ could be used to demonstrate the existence of common injuries in the form of overcharges. Direct Purchaser Pis.’ Mem. at 4. Schondelmeyer, a professor of pharmaceutical economics, explained that common evidence reveals the following characteristics of generic market entry: A generic drug typically enters the market at a price substantially below that of a branded drug. For this reason, the generic drug quickly captures a large market share. As other generic versions enter the market, prices of the generic drugs drop further, leading to a corresponding increase in their market share. To compensate, the manufacturer of the branded drug frequently increases its level of discounts and other price adjustments. See Direct Purchaser Pis.’ Mem. at 16.
SmithKline argues that Sehondelmeyer’s analysis fails to consider three crucial factors. First, “in many instances, the generic manufacturers bypassed wholesalers and sold directly to those wholesalers’ customers.” Def.’s Opp’n to Direct Purchaser Pis.’ Mot. at 11. SmithKline cites the declaration of Peter Greenhalgh, which explained that while the manufacturers of branded drugs “typically sell the majority of their products through pharmaceutical wholesalers,” the manufacturers of generic drugs often “sell directly to retail stores, HMOs, hospitals, and other customers.” Id. at 8, 15. SmithKline argues that in light of these “market realities,” determining the economic harm suffered by the plaintiffs requires individual inquiries regarding the extent and effect of bypass experienced by each purchaser. Id. at 17.
The direct purchaser plaintiffs, however, assert injuries in the form of overcharges, not economic harm. Direct Purchaser Pis.’ Reply Br. at 4. Overcharges, the “difference between the actual price and the presumed competitive price multiplied by the quantity purchased,” provide what the Supreme Court has long recognized as the principal measure of damages for plaintiffs injured as customers, rather than as competitors. Cardizem,
SmithKline next argues that Schondelmeyer “fails to account for ... [d]irect evidence showing] that prices for Relafen increased after the introduction of generic nabumetone.” Def.’s Opp’n to Direct Purchaser Pis.’ Mot. at 11. The direct purchaser plaintiffs, citing a report by Jeffrey J. Leitzinger, Ph.D., assert that SmithKline’s interpretation of the evidence fails to consider customer discounts and is therefore “simply wrong.” Direct Purchaser Pis.’ Reply Br. at 24. At the certification stage, it would be both “unwise and unfair” for the Court to decide this “material factual dispute.” Buspirone,
Finally, SmithKline challenges the Schondelmeyer Declaration for disregarding evidence indicating that “some class members made no purchases of a generic product.” Def.’s Opp’n to Direct Purchaser Pis.’ Mot. at 11. SmithKline argues that these class members, “who bought Relafen before and after the introduction of generic nabumetone,” suffered no injury in light of “the simple fact that prices of Relafen increased after generic entry.” Id. at 17 n. 8. The direct purchaser plaintiffs contest both the accuracy and the significance of SmithKline’s assertions. Direct Purchaser Pis.’ Reply Br. at 5-6.
As noted above, the direct purchaser plaintiffs contest the alleged increase in Relafen’s prices, suggesting that this is not quite “the simple fact” that SmithKline submits. Direct Purchaser Pis.’ Reply Br. at 24. Under the direct purchaser plaintiffs’ theory of damages, net prices of Relafen decreased after generic entry as a result of increased discounts granted to compensate for the growing market share captured by generic alternatives. Id. Accordingly, even those members of the class who purchased Relafen exclusively suffered from a delayed ability to obtain increased discounts on their purchases. But see Terazosin,
For these reasons, the Court concluded that common issues and evidence regarding liability and the existence of injury predominate over individual issues and evidence regarding the quantum of injury. See Smilow,
b. Analogous Actions
SmithKline also urges the Court to reject the direct purchaser plaintiffs’ arguments by analogy as inappropriate “short-cuts to certification.” Def.’s Opp’n to Direct Purchaser Pis.’ Mot. at 17. SmithKline first contends that the present action is distinguishable from other antitrust actions in which courts have presumed class-wide impact. Id. at 17-18. It is worth noting that even in actions based on alleged conspiracies to enforce tying arrangements, in which a presumption of class-wide impact is ordinarily deemed appropriate, several courts have noted that this presumption “does not convert a claim otherwise inappropriate for class treatment into one that may proceed as a class action.” Rental Car of N.H., Inc. v. Westinghouse Elec. Corp.,
SmithKline also challenges the plaintiffs’ analogies to Buspirone, Terazosin, and Cardizem, recent district court orders that certified classes of direct purchasers of branded drugs. Def.’s Opp’n to Direct Purchaser Pis.’ Mot. at 19. SmithKline contends that “in each of the other drug cases, defendants argued that certification was inappropriate because, in essence, the ability of direct purchasers to pass on overcharges made them better off.” Id. Here, however, SmithKline challenges the existence of injury not because the direct purchaser plaintiffs were able to “pass on” overcharges, but because certain plaintiffs, who would not have “purchased generic nabumetone, purchased less Relafen post-generic entry, and/or received discounts on Relafen,” would not have suffered overcharges at all. Id.
As an initial matter, the Court emphasizes that no ease,- however directly analogous, would justify the “reflexive certification” that SmithKline argues against. Id. The Court considered the above cases'to be persuasive only, and did so only after conducting an independent analysis of their facts and holdings. This analysis demonstrates that, contrary to SmithKline’s assertions, the defendants in each of the above eases raised “no overcharge” arguments similar to those raised here. See Buspirone,
Because SmithKline’s arguments did not alter the Court’s initial conclusion that common questions predominate, the Court next considered superiority.
2. Superiority
As stated by the Supreme Court in Amchem, the requirement of superiority, like that of predominance, ensures that resolution by class action will “achieve economies of time, effort, and expense, and promote ... uniformity of decision as to persons similarly situated, without sacrificing procedural fairness or bringing about other undesirable results.” Amchem,
Under Amchem, a class action here appears to be the superior method of resolving the direct purchaser plaintiffs’ claims. Given the predominance of common questions and evidence, it appears that resolution by class action would provide substantial savings in time, effort, and expense. See 7B Wright, Miller & Kane, supra, § 1781 (“Since antitrust actions typically present many complicated issues, the courts should utilize these [class action] provisions to settle the common
Regarding the first pertinent factor identified in Rule 23(b)(3) — “the interest of members of the class in individually controlling the prosecution or defense of separate actions,” Fed.R.Civ.P. 23(b)(3)(A) — the direct purchaser plaintiffs assert that “most Class members would be effectively foreclosed from pursuing their claims” if required to pursue them individually. Direct Purchaser Pis.’ Mem. at 19. The direct purchaser plaintiffs have, however, submitted no evidence of insufficient individual claims, instead presenting only aggregate estimates of purchases and claims. See Leitzinger Rep. [Doc. No. 136] at 38, 49. Moreover, the Schondelmeyer Declaration identifies the direct purchasers as primarily large businesses with presumably large claims: “wholesalers, retail chains with their own warehouses, and managed care organizations with their own warehouses.” Schondelmeyer Decl. [Doe. No. 120] ¶ 72. Nevertheless, the inclusion of approximately sixty class members suggests at least some “diversity both in the size of [the] businesses and in the size of their claims.” Cardizem,
The remaining factors described in Rule 23(b)(3) appear to be neutral or to favor certification. The Court is not aware of any other “litigation concerning the controversy already commenced by or against members of the class” which might otherwise create a threat of multiplicity and inconsistent adjudications. Fed.R.Civ.P. 23(b)(3)(B); see 7A Wright, Miller & Kane, supra, § 1780. The consolidation of several related claims — including those of a generic manufacturer and a proposed class of end payors — before this Court increase the “desirability ... of concentrating the litigation of the claims” of the direct purchasers in this forum. Fed.R.Civ.P. 23(b)(3)(C). Finally, the direct purchaser plaintiffs established that class members were readily identifiable and many had previously communicated with class counsel, suggesting that neither identification nor notice was likely to present “difficulties ... in the management of a class action.” Fed.R.Civ.P. 23(b)(3)(D); see Amchem,
The Court accordingly concluded that the direct purchaser plaintiffs established both predominance and superiority as required under Rule 23(b)(3).
IY. CONCLUSION
For the foregoing reasons, the Direct Purchaser Plaintiffs’ Motion for Class Certification [Doc. No. 119] was ALLOWED.
Notes
. Parties who purchased Relafen from sources other than SmithKline ("end payors”) have also moved for class certification. The end payors’ motion will be addressed in a separate opinion.
. Unless otherwise indicated, these facts are drawn from the Court’s Memorandum and Order, issued October 1, 2003, which addressed the parties’ motions based on the statute of limitations and the doctrine of collateral estoppel. In re Relafen Antitrust Litig.,
. Teva acquired Copley (and its generic nabumetone products) in August, 1999.
. Former lead plaintiff Meijer, Inc. withdrew as a representative of the class by notice dated July 10, 2003. Notice of Withdrawal of Meijer, Inc. as Class Representative [Doc. No. 92] at 1.
